The ruling yesterday by the Australian Competition and Consumer Commission to force Telstra to open its local exchanges and the copper-wire that connects them to households to competitors is a welcome one.
Telstra says it was not forced. Well, it took an ACCC ruling before anything happened, or was likely to happen. Telstra now says it welcomes the ruling and it will work in a competitive environment. That is good start, if belated.
The history of telecommunications in Australia in the past decade has been remarkable. It has been a decade of both technological and marketing innovation with huge benefits for consumers, both domestic and business. It is one of the success stories of privatisation and competition. Some activities are better suited to more public ownership, but not this one. It is an illustration of applying what works rather than ideology.
With the ACCC ruling it is likely that the price of local calls will fall below 20 cents. Telstra says it will not introduce timed local calls. That is fine, but other carriers might, off-setting them against other benefits. It will mean greater consumer choice.
The ACCC ruling, however, highlights that the Government probably chose the wrong model when it opened up the phone system to competition. A better model would have been to separate the network function from the service-provision function. It would have been better to have divided Telstra into a network arm and a service provision arm. The network has always been a natural monopoly, whether privately owned or publicly owned. The service arm of Telstra could then have competed with other service providers using the network which would be open to all.
The trouble with the present model is that Telstra is both a network user as a service provider and the network owner. It is always going to favour itself over competitors, giving it an unfair advantage. Yesterday’s ACCC ruling will require constant monitoring, as the ACCC admits. It is also a logistic nightmare as Telstra has to work out maintenance charges for the other service providers.
Further, Telstra is required to perform certain community service functions. That involves subsidising services in remote areas and refraining from charging for directory assistance. Other service providers are exempted from this. It introduces distortions into the market, that ultimately harm consumers. The “”free” directory assistance is an emotionally charged case in point. People imagine that directory assistance is important for the aged and infirm. In fact, it is misused and over-used because it is free.
A separated Telstra would allow the network arm to do the community service, even if it contracted some of it to one of the service providers. At the time competition was introduced, however, it was probably politically impossible to separate Telstra. The question is whether it is too late to do it now.
The ACCC seems confident that it can monitor the industry to ensure Telstra is playing fair, but how much easier that would be if the network were split off. It could be either public, private or a mix, depending on what was politically acceptable. The service wing would obviously be private. As things stand the ACCC has to constantly watch to ensure that Telstra the network owner is treating Telstra the service provider on an equal footing with all other service providers. But competition is hard to maintain in a market where there is a large vertical monopoly.
The case for splitting Telstra is strengthened by the possibility of a new fibre-optic network to households.